Tuesday, April 29, 2014

While Apple's ongoing smartphone patent disputes with Samsung and Google's Motorola Mobility haven't been settled yet, the antitrust matters relating to those companies' assertions of standard-essential patents (SEPs) against Apple have now been resolved by regulators on different continents. After the closing of the investigations by the United States Department of Justice (DoJ) of Samsung and Google's (Motorola Mobility's) conduct, and the Korea Fair Trade Commission's investigation of Samsung's SEP assertions against Apple, the European Commission has now made its decisions in the related cases as well:

The EU's top antitrust enforcer has made a settlement offer by Samsung "legally binding under EU antitrust rules". I had harshly criticized Samsung's original proposal in October 2013 and was not surprised that the Commission later recognized a need for further improvement, but some very important progress has been made since. The part that mattered most to me at the time has been addressed: according to the announcement, a FRAND determination will be made by a court of law if only one of the two parties (Samsung or an implementer of a standard) prefers judicial determination over arbitration. I was against a framework under which arbitration would be the rule and judicial determination an exception. I'm very happy about the fact that arbitration is now subject to mutual consent.

Samsung had already dropped its European SEP-related injunction requests in December 2012, which was a win for the EU (while reserving the right to seek damages over SEPs and any remedies, including injunctions, over non-SEPs). It won't seek any SEP-based injunctions in Europe for the next five years against those who agree to a particular framework that will result in a license agreement. The parties will negotiate for up to 12 months, and if no agreement is reached, the license terms will be determined by a court (if one party prefers) or an arbitrator (if both agree). This means Apple will have to pay SEP royalties to Samsung, but Samsung won't be able to force Apple to accept any particular licensing terms at the threat of injunctive relief.

Since this is a settlement, there are no sanctions against Samsung, just like there haven't been any in the U.S. or Korea either. Samsung had sought SEP-based injunctions in Europe, but it never won any, despite attempts in several countries. If it had been more successful with its SEP enforcement in Europe, then it would now have had a harder time settling the antitrust matter.

No sanctions were imposed on Google's Motorola Mobility either, but it has been "ordered to eliminate the negative effects resulting from" its pursuit and (very temporary) enforcement of injunctive relief against Apple in Germany. Those negative effects are, as far as I can see, limited to a license agreement that Apple was forced to enter into and that contains clauses that the European Commission deems anticompetitive, particularly that Apple had to "give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs".

The good news for Google is that "[t]he Commission decided not to impose a fine on Motorola in view of the fact that there is no case-law by the European Union Courts dealing with the legality under Article 102 TFEU of SEP-based injunctions and that national courts have so far reached diverging conclusions on this question". But this is not nearly as bad for defendants against SEP-based injunction requests as it may seem at first sight: it's just that the European Commission won't try to impose its perspective on SEP injunctions on the whole of Europe while Europe's highest court, the Court of Justice of the EU, is looking into this in connection with a Huawei v. ZTE case. Clarity and EU-wide harmonization may very well be provided as a result of that case. This would have been the wrong time for the Commission to set EU-wide rules in an area in which national courts have divergent approaches.

The Commission today also published a Q&A document on these SEP-related decisions, which among other things explains the bearing the Motorola prohibition decision may have on the application of the Orange-Book-Standard framework by German courts. The Commission notes that Orange Book did not relate to SEPs (in fact, it was a compulsory licensing case, but in my opinion it was a SEP case, just not a case involving FRAND-pledged SEPs). In any event, the Commission's Motorola decision makes clear that it would be anticompetitive to require a "willing licensee" (a term that different people interpret in different ways) to waive the right to "challenge the validity, infringement and essentiality of the SEPs in question". Certain German courts had expected defendants to give up fundamental rights like these, and will probably not do so anymore unless the CJEU opinion in Huawei v. ZTE opens the floodgates for such terms and conditions.

The Samsung case is definitely over now. Google's Motorola Mobility could appeal the Commission decision. Also, no decision (not even a preliminary ruling) has come down yet in connection with Motorola Mobility's pursuit of SEP-based injunctive relief against Microsoft in Europe.

For both Samsung and Google, today's news is really good news, and it comes at an opportune time.

Later today, or first thing tomorrow, the Apple v. Samsung II jury will begin its deliberations. Jurors are not allowed to inform themselves about the dispute in the media, but in the public debate (which is the key battlefield here because Apple's patent claims-in-suit won't give it serious strategic leverage no matter the outcome), the fact that Samsung had not been sanctioned by any of three antitrust regulators investigating its potential wrongdoing clearly helps the global market leader defend its reputation.

For Google the timing is good because it soon wants to close the sale of Motorola Mobility's devices business to Lenovo. It now knows that there are not going to be any sanctions over its SEP assertions against Apple. Since Google will retain most of Motorola Mobility's patents anyway, the antitrust matter was basically just Google's, not Lenovo's, problem. Still it helps to clear up a mess before a major transaction is consummated.

It is now in the eye of the beholder whether the reason is that Samsung and Motorola Mobility's conduct had not been "that bad", that these companies' (in-house and outside) lawyers did a great job at dissuading antitrust regulators from imposing sanctions, or that regulators ultimately didn't have the resolve to act more decisively. In my opinion, the first two theories hold some truth, but the third one is a non-issue. I believe the Commission didn't really have a practical alternative to (as it now has) leaving the harmonization of European SEP injunction law to the EU's highest court.

Without Huawei v. ZTE pending before the CJEU, I would have criticized the Commission today. But against that background I think today's decisions were the right ones. Also, as I wrote yesterday, Apple's own conduct vis-à-vis Samsung and Motorola Mobility is, to put it diplomatically, neither perfectly consistent nor overly constructive, and antitrust regulators (as well as judges) can see that easily. Of course, the Commission could have taken forceful measures against Samsung and Google if it had been willing to take the risk of the CJEU's Huawei v. ZTE opinion potentially rendering its decisions wrong in the near term. But that would have made sense only in a situation in which it would have been necessary to take that risk of an embarrassment in order to defend a major cause or to protect someone who really needed help. There was no risk of competitive harm between now and the resolution of the CJEU case, and it's hard to see why Apple couldn't or shouldn't pay court-determined (or, if mutually agreed-upon, arbitrated) SEP royalties to Samsung and Google.

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About Me

Florian Mueller used to be an award-winning intellectual property activist. His 30 years of software industry expertise span different market segments (games, education, productivity and infrastructure software), diverse business models, and technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof, except that he is long AAPL.) He is now developing games for smartphones and tablet computers.